Hiring your first employee: payroll basics

Once you pay someone a salary or wages, you’re an employer, whether you’re a sole proprietor or run a corporation. You deduct CPP, EI and income tax from each pay, add your own share of CPP and EI, send it all to the CRA on time, and report it after the year ends. Here’s what to do, in order.

Employee or contractor?

First, make sure the person is an employee. Generally, an employee works under your direction and control, doesn’t normally have a chance to make a profit or suffer a loss, and is an integral part of your business. A self-employed contractor runs their own business, agrees to provide a service under a contract for services, and is free to choose how to do the work.

A written contract that calls someone self-employed doesn’t settle it: the CRA looks at the facts of the working relationship as a whole. If you or the worker aren’t sure, either of you can ask the CRA for a CPP/EI ruling.

Open a payroll account

You need a payroll program account with the CRA, attached to your business number (BN). The CRA says to register before your first remittance due date, which it gives as the 15th of the month after the month you first withhold deductions from an employee’s pay, unless the CRA tells you to remit at a different frequency. (Many new employers end up remitting quarterly instead; see “Remitting on time” below.) The fastest way to register is Business Registration Online, where you can register for other accounts, such as GST/HST, at the same time.

If you start paying someone before you’ve registered, you still have to calculate the deductions and remit them by the due date, or you may be assessed a penalty.

On their first day

• Social insurance number. Get the employee’s SIN within 3 days of the day they start, and make sure they’re legally allowed to work in Canada. A SIN that starts with 9 is temporary: look at the immigration document that authorizes them to work, and check that it hasn’t expired. If they don’t have a SIN yet, they must apply for one and give it to you within 3 days of receiving it.
• TD1 forms. Have them fill out the federal Form TD1, Personal Tax Credits Return, plus their provincial or territorial TD1 if they claim more than the basic personal amount. You use the total claim amounts to work out how much income tax to withhold. Keep the forms with your records; don’t send them to the CRA. If you don’t get a TD1, withhold tax allowing only the basic personal amount.
• Province of employment. Determine the employee’s province of employment, so you withhold the right deductions, including the right provincial or territorial tax.

What to deduct from each pay

From each pay, deduct:

• CPP contributions, for employees aged 18 to 69 who aren’t considered disabled under the CPP or QPP (if an employee aged 65 to 69 gives you a completed Form CPT30 electing to stop contributing, you stop deducting)
• EI premiums, which have no age limit
• income tax, federal and provincial or territorial

On top of what you deduct, you pay your own share: an amount equal to the CPP contributions you deducted, and 1.4 times the EI premiums. You remit both parts together. Each year’s rates and maximums are in our CPP, QPP, EI and QPIP table.

The CRA’s Payroll Deductions Online Calculator (PDOC) works out the amounts for common pay periods, such as weekly or every two weeks. It covers federal, provincial and territorial deductions, except Quebec provincial tax. Taxable benefits, such as a parking spot or a gift card, count too: see taxable benefits.

Remitting on time

Your remitter type sets your due dates. You can check it in the CRA’s online services for businesses.

• New employers (payroll account open less than 12 months) remit quarterly if the total they have to remit for each month (their monthly withholding amount) is less than $1,000 and they keep a perfect compliance record on their payroll and GST/HST accounts. Quarterly remittances are due April 15, July 15, October 15 and January 15. You don’t have to apply, but the CRA may tell you on your statement of account to remit at a different frequency. A new employer that stops qualifying becomes a regular remitter from the next calendar quarter.
• Regular remitters remit monthly, by the 15th of the month after the month you paid your employees.
• Larger employers remit more often.

If a due date falls on a weekend or a public holiday, your payment is on time if the CRA receives it, or a Canadian financial institution processes it, by the next business day. Late or missing remittances can bring a penalty that rises the later you are, plus interest. In a period when you don’t pay anyone, report a nil remittance by the due date.

After the year ends: T4 slips

For each calendar year, prepare a T4 slip for every employee and file the slips with a T4 Summary by the last day of February of the following year. Give your employees their copies by the same date. You can hand out or mail paper slips, post them on a secure employer portal (employees can still ask for paper), or email them to employees who have agreed in writing or electronically. If the deadline falls on a weekend or public holiday, filing by the next business day is on time.

When someone stops working for you, the CRA suggests working out their year-to-date earnings and giving them their slip then. The filing deadline doesn’t change.

Records of employment

You must issue a record of employment (ROE) each time an employee has an interruption of earnings. It’s the main document people use to apply for EI benefits. You can create and submit ROEs online through Service Canada’s ROE Web.

If your business is in Quebec

If you have a place of business in Quebec, you may also have to register for source deductions with Revenu Québec, as well as opening your CRA payroll account. For your employees in Quebec:

• Ask for their SIN, and have them fill out Revenu Québec’s Form TP-1015.3-V, Source Deductions Return.
• Deduct Quebec income tax, Québec Pension Plan (QPP) contributions (instead of CPP) and Québec parental insurance plan (QPIP) premiums, and pay the employer’s share of QPP and QPIP.
• Pay the employer contributions to the health services fund, for labour standards and to the Workforce Skills Development and Recognition Fund (WSDRF), as they apply to you. You may also have to register with or pay contributions to the CNESST.
• File RL-1 slips and the RL-1 summary with Revenu Québec, and give employees their slips, by the last day of February.

You still deduct federal income tax, and you deduct EI at the reduced Quebec rate.

Checklist

1. Confirm the worker is an employee.
2. Open a payroll account (and register with Revenu Québec if your business is in Quebec).
3. Get the SIN and TD1 forms when they start.
4. Deduct CPP, EI and income tax from every pay, and add your share.
5. Remit by your due dates.
6. File T4 slips and the T4 Summary by the end of February.
7. Issue an ROE whenever an employee’s earnings are interrupted.